tv [untitled] January 12, 2011 8:00am-8:30am PST
commissioner: it would be unlikely that he be sworn in until the middle of the month, at the very earliest, but most likely at the end of january. secretary housh: we can check. president vietor: ok, great. anything else on communications? next item, please. president vietor: -- secretary housh: other commission business. president vietor: seeing none, next item, please. secretary housh: a report of the
general manager. >> this is our first meeting without fx crowley. we will talk about the financials and start getting your thinking about budget priorities and the budget situation that we have for the puc. >> good afternoon, todd r ydstrom. as you know, we work on four years at one time. what we have before you write knelt is the last year's financial audit, we do what we have before you right now is the last year's financial audit -- what we have before you right now is the last year's financial
audit. i am very pleased to report to show you on the screen the last three years of results for all three financial statements, and, again, in the fiscal year 2009/2010, we have what equates to a very strong that bill of health, and that means that we have had -- there were no findings of any deficiencies, and an audit manager will go well. we time these audits with others. what this also means is that for the first year, what they directed us to do, we created a separate component for the financial statement for hetch- hetchy water and also hetch- hetchy power, so that was part
of the steps we took to get independent credit rating because of the hetch-hetchy operation. sfpuc and the finance team, in particular, got the distinguished and excellence in financial reporting award. that is for the comprehensive annual financial report. the audits again, as i mentioned, were all clean audits, and we went to get this back to you, soon, commissioner moran. we are getting very good value for the rates that we're collecting from customers.
we are looking to finalize that. it is city. -- soon. we will discuss the budget situation later today and the outlook of our selection, so with that, i will turn it over to the audit manager, karen, and she has the presentation for you. >> good afternoon, commissioners. i in the city manager, karen. -- i am the city manager. this is for one cycle.
we have completed the audit of the water enterprise, the waste water entity, and as todd mentioned, hetch hetchy broken out. as he also mentioned, we had clean audits. so going into the slides that we have prepared, there are the required communications, beginning with our responsibilities under generally accepted principles. we understand to plan to perform the audits to obtain reasonable not absolute assurance that the papers are free of the statements -- missstatements.
things are described in detail in two of the financial statements. as part of the process, we look at the quality and consistency with industry standards, and we found them to be consistent. in terms of estimates, we spend some time -- spent some time. one significant estimate that i would like to bring to your attention is the wholesale balancing of accounts receivable. we evaluated things related to this. another point under the required communications is corrected and
uncorrected misstatements, and we did not find any that would have a material impact. we did discuss with management certain financial misstatements. we have provided some detail on what in the slides that follow. i am not going to go through each of them, but if you of any questions and the like to expand on any, we can do that. the next are items related to water. the following slides it is the items we identified related to waste water enterprise. the last are items we identified separately for hetch-hetchy power and hetch-hetchy water. and for some perspective, in
some cases, they are less than 1%. this puts into perspective how material they are. the last slide we have, the first three bullet points we have on this slide, we would be required to inform you of difficulties. there were no major issues discussed. in terms of material written communication, we have representation letters. we receive a signed document. so those are all of the required to medications. i would be happy to take your questions. president vietor: well, that is
good news, is it not? i just want to congratulate mr. rydstrom. hi there any other comments? -- are there any other comments? commissioner: what is your name again? >> kerin. --karen. we have a series of other cities and counties that are a part of our client base. commissioner: given what we are going through now, it is very commendable in terms of what you have been able to achieve. have you seen a clean audit than this? -- cleaner audit than this? there is no other agency that
has had such a commendable review, is there? >> there are other agencies that have no audit findings, so -- commissioner: you are being very noncommittal, as an auditor should be. a job well done. >> it is my understanding that that company audited nanny in the past, so they have a huge client base. >> yes. president vietor: thank you very much. the general managers' report, i believe. -- manager's report. secretary housh: there has
comments that have been made about wanting to have a pre- discussion. we also will be going to staff with recommendations, so we wanted to show to you what we are looking at in terms of the priorities that we were setting so you can help us to work through that today as opposed to being surprised when you come, so we wanted to give you an update of generally important things but also more specific things by agency that we will be dealing with, whether those things seem appropriate, or whether for some reason you would like us to do some research so that when we come back to you in january, the research has been done. i think, globally speaking, it
is not going to be a significant year of growth for the puc. we will be doing a lot of capital work with bond money, but we will not be doing a lot of change, and i will let mr. rydstrom walk through some of that. >> there are some extras here for the public, as well. i would like to walk you through a couple of refreshers slides, and this will be mr. torres' first. commissioner torres: i will not be the excuse for a longer meeting. i am a fast learner.
>> key policy initiatives to prepare the budget with, and we have included that here. we want to make sure that we come back to you in january and give you the budget documents presented in a way that you find most useful. i would like to mention that mr. harrington mentioned that in some ways, our budget may seem a little boring over the next couple of years because we of the operating under a relatively flat operating budget, and that is because we have had to bridge lower sales for water. if you look at our two-year budget that was adopted, it is growing to $860 million that we have adopted already for the two-year budget cycle. just a refresher, $75 million of that growth is planned debt service for the water in.
program. the other $25 million is all cash -- capital. particularly in streetlight programs and also in the waste water program. these are the two changes that explain your one versus year two. -- your -- year one versus year two. what we're doing right now is meeting with the general manager's office, and they are updating the general manager about the planned goals, and this is the same way we presented them to you before.
we will continue to report accordingly. last year, you also said that you were interested in seeing the budget not only by strategic goal but also by initiative, and those were running a world class utility operation, sustainability, greening, as well as work force to the limits, so the attachment in your packet talks about those. -- as well as work force improvements. this is in preparation for your consideration, keeping in mind the prioritized items.
there was the system reliability, regulatory compliance, health and safety, a community benefit, jobs, affordability of rates, revenue generation, and also stewardship policies, so we will continue to look at those and prepare the presentation, and then any other items you would like to add to that. as i mentioned, we are always working on about four fiscal years. there are the quarterly financial projections for the budget, and this is really a continuation of " what you heard about the first quarter financials.
we are doing very well. a lot of our sales are lower than we projected originally. what that means in terms of dollars is that there is $10 million less annually, and because we adopted a five-year retail rate, we are assuming we will be $10 million short over the next few years. on the wholesale side, we know our wholesale customers are always timely in their payments, so we will catch up to what we need to pay the required revenues but what this means is that some years, if we assume sales are here, our collections are deferred and that is why
there is a balancing account. right now, our sales are down significantly because of confirmation -- conservation. the november data, as well shows this -- as well, shows this. on the retail, folks conserve another half of 1%. another thing to look at is but the budget proposal and the way to maintain the five-year adopted a rate plan, in this is so we would not have to go back and ask for another.
we do it balancing account audit -- a balancing account audit. we are short in water sales. we are $30 million short this year, and that is only if wholesale customers, retail customers, are even doing better at conservation, and we're only at about 51 gallons per person per day, and that is one of the lowest in california, so we do not go to zero. people need to shout or -- to shower, but people are doing a really good job of conserving korea -- of conservative. what this means is that if things do get worse, we would likely have to have budget cuts. right now, the general manager
has asked us to come forward with a flat budget, and this is to live within the existing rates that we have. the context of this, because it is kind of hard to tell, the blue line at the bottom there is the water deliveries from the public utilities to a wholesale customers, and what i circled at the bottom are the key years of the routes over the last 30 years in california, the late 1970's, most recently 2007 to 2008. that is at the bottom of the graph, and you can see that we
are at or approaching where our deliveries had been, so that means that we are doing a heck of a good job conserving and using water wisely, and we were basically flat from what we had in our 2009 deliveries. we were averaging and assuming that was steady. that means we are not collecting as much cash revenue as early as we thought. it is a similar story on the retail side. they have continued to do additional savings. president vietor: can i ask you a quick question? does that mean that people are behaving as if there is a drought? it looks like right now they are parallel in drought conditions. >> it sure does.
-- they are paralleling drought conditions. >> it sure does. there is also the economy, and we do have about 10% vacancies in office, using less water when they flush the toilet or wash their hands, and that is that we just have less water uses. -- usage. we also look at how quickly hotel and restaurant sales are recovering. we're looking to see if there is any upsurge or uptick in economic activity there, because bakeries and breweries use more water, and offices use some come in residences use some. -- use some, and residences use some.
i know commissioner torres is monitoring the situation, as well. this shows the actual rates we have adopted, the rate changes we have adopted, and the yellow is showing that we stay and are able to stay -- we are able to do that on the retail side up until 2013, 2014, just as planned. now, once we get to 2014, 2015, because we have lower deliveries to retail customers, if that trend continues, we have to ask for a 12% rate increase for fiscal year 2014-2015.
that 2% additional need is because we're using less water, not because costs went up more than planned. and there are the three key factors. those include how cheaply we are able to borrow debt, whether or not the rest of our budget is growing or changing, and water delivery, as well. those are some of the things that are outside of our control. the other option we have is how we calibrate our cash-funded programs, because some years, we work more in debt, and of the years, perhaps, we spend less, we do we work more in that boat, and other years, perhaps --
because some years we work more in that, and other years, perhaps, we spend less. the water 10-year outlook, the wholesale customers are on the next page, page 10, and it is the same layout here, what we have already adopted, showing the percentage change as well as the dollar per unit, and what i think is especially important is the two circled areas. we have an average rate almost exactly what we set one year ago. the reason we are able to do that is because we have locked in low-cost, fixed-rate debt. we expect to have a very successful situation. about $524 million.
that is slated for tomorrow's calendar. if i can draw your attention to this one road dealing with fiscal year 2012. -- this one wrote -- row. based upon the fact that deliveries are down so much, we need to have a rate of about $2.61, so that would be a rate increase a little sooner. others are seeing similar drops, as well. it will not be a big surprise, but, nevertheless, it will likely be sooner increase than was previously expected. one year ago, we needed about 10% in fiscal year 2012, and now it is kind of the reverse. we need 35%, 36% in 2011 to
2012, and then it can go down. these are projections based on what you saw in the first quarter financial report, and only if folks do not do an even better job of conserving or using less water. if folks use less water, these numbers would have to change again. we will look at this every month between now and budget adoption. president vietor: police. commissioner torres. commissioner torres: you are right. i am taking the position of the rate payer in this. what about in respect to the rates? >> with our system reliability goals, in addition to that, some
individual ratepayers can actually see their bills go down if they are taking advantage of our low flow toilets and our rebate programs, so different customers may actually see a decrease in their bills, and others would be an average increase. even with our projected increases over the next several years, if you look at average bills of the bay area community and also other major utilities, portland, seattle, phoenix, san diego, we still fall in the middle of the pactp -- ack. -- pack. commissioner torres: it is the communication and education of consumers that continue to need to be a priority.
their rates may decrease. >> you are right. every time we send out bills, they do periodic reminders of the programs. we also offer low flow fixtures and shower heads. commissioner torres: i have received that communication. i just wanted to highlight that. the bond? >> it will be right at $524 million. for the bonds, we are going to do about $350 million of build america bonds before that expires on the 31st. commissioner torres: what is the bond rating for san francisco? >> we are ataa. we are at